Can any of the company-specific risk be diversified away by investing in both XS Financial and Regional Management at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining XS Financial and Regional Management into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between XS Financial and Regional Management Corp, you can compare the effects of market volatilities on XS Financial and Regional Management and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in XS Financial with a short position of Regional Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of XS Financial and Regional Management.
Diversification Opportunities for XS Financial and Regional Management
The 3 months correlation between XSHLF and Regional is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding XS Financial and Regional Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Management Corp and XS Financial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on XS Financial are associated (or correlated) with Regional Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Management Corp has no effect on the direction of XS Financial i.e., XS Financial and Regional Management go up and down completely randomly.
Pair Corralation between XS Financial and Regional Management
Assuming the 90 days horizon XS Financial is expected to generate 5.99 times more return on investment than Regional Management. However, XS Financial is 5.99 times more volatile than Regional Management Corp. It trades about -0.02 of its potential returns per unit of risk. Regional Management Corp is currently generating about -0.15 per unit of risk. If you would invest 3.95 in XS Financial on March 6, 2024 and sell it today you would lose (0.55) from holding XS Financial or give up 13.92% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in XS Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal essential indicators, XS Financial reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Regional Management Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal primary indicators, Regional Management displayed solid returns over the last few months and may actually be approaching a breakup point.